Pound edges lower in muted City reaction to Autumn Statement

(UPDATE 14:50) Sterling edged slightly lower after chancellor George Osborne extended coalition austerity measures into 2018, warning there are no ‘miracle cures’ for the UK economy in his Autumn Statement.

The chancellor extended spending cuts until 2017/2018, prolonging austerity, and reduced growth forecasts. Gross domestic product (GDP) was revised down for 2012 from 0.8% to -0.1%, based on forecasts from the Office for Budget Responsibility (OBR).

The pound dropped 0.05% against the dollar to $1.6094, and added 0.11% against a weaker euro to €1.23 after the announcement.

Analysts were closely watching the statement for any hint of weakness that could be seen as a further threat to the country’s AAA credit-rating.

Joshua Raymond, chief market strategist at City Index, commented: ‘Not sure there is much in here for rating agencies to change track on UK dramatically, may review though cannot see a downgrade’.

Nancy Curtin, chief investment officer at investment group Close Brothers, also commented that with extended austerity measures the government will need to make bigger concessions to stimulate the economy.

Curtin added: ‘Faced with falling UK growth forecasts and with the imminent threat of the UK losing its AAA status, the City needed definitive action from the chancellor to stimulate growth as it becomes clear that austerity alone will not set us on the path to economic recovery. There was a lot of window dressing, but buried deep among the platitudes there were a few hidden gems.’

She pointed to lower corporation tax and investing in infrastructure and shale gas as positives from the statement.

UK shares moved ahead following US jobs figures. Data from ADP said companies added 118,000 workers in November, lower than the 129,000 jobs forecast created last month.

The FTSE inched ahead by 0.36%, or 21 points, to 5,906 and the Mid-250 index increased 42%, or 51 points, to 12,104.

Markets were mixed on Wall Street, with the Dow Jones Industrial Average 0.38% higher to 12,999 and the Standard & Poor's 500 index flat at 1,406.

‘Decisive’ Tesco competes with miners for FTSE lead

09.01: Tesco jostled with mining companies for top place on the FTSE 100 on Wednesday morning as investors overlooked a decline in the supermarket group's UK sales to welcome a review of the chain’s loss-making US business.

Chief executive Philip Clarke admitted that ‘our general merchandise performance overall in the UK was not good enough,' after Tesco’s UK like-for-like sales fell by 0.6% in the quarter.

But in a move which City analysts showed the Tesco chief was prepared to act decisively to tackle the group’s woes, Clarke announced a review of the US operations. ‘It is now clear that Fresh & Easy will not deliver acceptable shareholder returns on an appropriate timeframe in its current form.’

Though shares rose nearly 4% to 338p this morning, the City is divided over whether Tesco (TSCO.L) can deliver its turnaround plan after a surprise profit warning in January.

‘From a share price perspective even if Tesco does have a relatively good Christmas, there will still be no visibility on whether UK profits have bottomed until the second half of 2013,’ commented Kate Calvert of Seymour Pierce, reiterating her ‘reduce’ rating on the shares as ‘there is a high risk that things will get worse before they get better’.

Other analysts are optimistic that 2013 will be better than 2012, while some investors note that the shares are cheap.

Nick Coulter of Nomura, who has a ‘buy’ rating on the shares, said the strategic review of the US business ‘points to a management team willing to act decisively to improve its capital allocation and discipline’.

James Grzinic of Jefferies added: ‘2013 looking a lot better than 2012, as the past year has been hit by UK margin repositioning, no growth at the Bank, Korean trading restrictions, £ revaluation and a globally weak macro picture.’

Fiscal cliff Vs China optimism

Tesco was competing with mining companies for top spot on the FTSE on a bright morning for shares ahead of big ticket economic data in Europe and the US, as well as the UK’s Autumn Statement.

Comments from US president Barack Obama, who rejected a Republican proposal to resolve the fiscal cliff crisis as ‘out of balance’, had weighed on US markets. But new Chinese leader Xi Jinping boosted hopes for an economic upturn, in turn helping Asian and European markets higher, saying the Chinese authorities would maintain its fine-tuning of economic policies in 2013 to ensure stable economic growth.

In London, Anglo American(AAL.L) rose 3.8% to 1803p, ENRC(ENRC.L) climbed 3.3% to 279p and Vedanta(VED.L) was up 3.2% to 1101p.

The wider FTSE 100 was trading up 0.5% to 5899, with similar gains on French and German markets.

Greater risk appetite helped the euro 0.15% higher to $1.31, while commodity prices also rose after Xi's comments with Brent crude oil futures trading up 0.4% to $110 per barrel.

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